HAL Analysis

Halliburton Co. (HAL)

Update 1/17/2018: HAL moved into a downtrend as measured by the Fisher Transform metric. Although the earnings announcement five days away, given the breadth throughout the markets of the downtrend signaling, I chose to exit to escape the risk of a move well beyond the profit zone.

Shares declined by 1.8% over nine days, or a -73% annual rate. The options position produced a 0.9% return for a 36.7% annual rate.

I have entered a short iron fly spread on HAL, using options that trade for the last time 15 days hence, on Jan. 26. The premium is a $2.23 debit and the stock at the time of entry was priced at $53.19.

I made the decision to enter the trade in my account based on low expectations of an earnings surprise and a high implied volatility in relation to both the annual range and the most recent broad movement. It’s also a highly liquid stock.

The profit zone for this position is between $55.73 on the upside and $50.73 on the downside. I skewed the long put strike downward to accommodate my view that a post-earns decline is more likely than a rise.

HAL publishes earnings on Jan. 22 before the opening bell.

Implied volatility stands at 29%, which is triple the VIX, a measure of the volatility of the S&P 500 index.

HAL’s IV stands in the 64th percentile of its annual range and at the peak of its most recent broad movement.

The price used for analysis was $53.30.

Premium: $2.23 Expire OTM
HAL-iron fly Strike Odds Delta
Long 57.50 89.9% 11
Break-even 55.73 76.0% 25
Short 53.50 54.1% 48
Short 53.50 45.7% 52
Break-even 50.73 87.0% 12
Long 48.50 92.5% 7

The premium is 49.6% of the width of the position’s wings.

The risk/reward ratio is 1.2:1.

The zone of profit in the proposed trade covers a $2.23 move to the upside and a $2.77 move to the downside. The biggest immediate move after each of the past four earnings announcements was 1.96, and the average was $1.45. After eliminating the maximum and minimum post-earnings movements, the central tendency is $1.76.

Over the past four earnings announcements the price has never closed the first post-earns session higher than the pre-earns close.

The break-even probabilities applied to the past four post-earnings moves show no probability of the price rising while contained within the boundaries of the profit zone and an 87% probability of it falling while remaining profitable

Options analysis puts the expected move covering 85% of occurrences at $2.49, within the profit zone to the downside but not to the upside.

The bid/ask spread was 4.5%.

By Tim Bovee, Portland, Oregon, Jan. 11, 2018


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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